France Telecom to Sell Swiss Unit to Apax for $2.1 Billion

December 27, 2011, 2:18 AM EST By Matthew Campbell and Aaron Kirchfeld

(Updates with operations in fourth paragraph.)

Dec. 24 (Bloomberg) -- France Telecom SA agreed to sell its Orange Switzerland mobile-phone unit to buyout firm Apax Partners LLP for 1.6 billion euros ($2.1 billion), the first major step in Chief Executive Officer Stephane Richard’s plan to unload slow-growing European operations.

The deal, which is subject to approval by Swiss authorities, will be submitted to France Telecom’s board in the week starting Jan. 9, the company said in a statement today. London-based Apax beat rivals including EQT Partners AB, Providence Equity Partners Inc. and French telecommunications billionaire Xavier Niel, people with knowledge of the transaction said yesterday.

France Telecom is shedding assets in Europe, where phone companies are vying for a shrinking pool of new customers amid tightening regulation, to embrace faster-growing markets in Africa and the Middle East. France’s largest mobile operator is also in talks to sell its Orange Austria unit to Hong Kong-based Hutchison Whampoa Ltd., people familiar with the situation said in October, and is planning to exit Portugal.

“It makes sense to exit the difficult Swiss market and may give them more flexibility on the cash-flow side,” said Giovanni Montalti, a London-based analyst at Credit Agricole Cheuvreux. The deal will leave France Telecom with European operations in countries including Spain, Poland, and the U.K., along with its home market, while its emerging-market footprint includes Kenya, Cameroon, and Tunisia.

Perella Weinberg Partners LP and Lazard Ltd. advised France Telecom on the Swiss sale. EQT and Providence couldn’t immediately be reached for comment.

Apax Deals

Apax has participated in more than 20 deals this year, including last month’s $6.5 billion buyout of U.S. wound- treatment company Kinetic Concepts Inc., its largest in 2011, according to Bloomberg data. The firm has amassed about half the 9 billion euros it’s seeking for its latest fund, three people with knowledge of the plans said this month.

France Telecom’s decision to exit Switzerland follows an attempt to merge its operations there with rival Sunrise that was rejected by competition regulators last year. Sunrise’s owner, London-based CVC Capital Partners, was excluded from the Orange Switzerland sale process, although the firm discussed assisting Providence with arranging financing in the hopes of attempting another merger, people with knowledge of the talks have said.

A combination of Orange Switzerland with Sunrise would leave the country of about 8 million residents with just two mobile operators: the merged entity and Swisscom AG, the former Swiss phone monopoly. By comparison, the U.K., Germany and Italy all have four full-service mobile-network providers.

Orange Suisse

Today’s deal values Orange Switzerland, which had revenue of 1.3 billion Swiss francs ($1.39 billion) last year, at 6.5 times its estimated 2011 earnings before interest, taxes, depreciation and amortization, according to France Telecom. That compares with a median Ebitda multiple of 5.6 paid for Western European telecommunications assets in the last 3 years, Bloomberg data show.

Europe’s mobile operators are struggling to find avenues for growth as mobile penetration reaches its maximum and economic uncertainty crimps consumer spending. Telefonica SA this month cut its dividend for the first time in a decade, citing worsening market conditions, while France Telecom reported a 6 percent decline in third-quarter profit as a revenue decline at home overshadowed stronger performances in Africa.

Protect Dividend

The French company’s shares have fallen 23 percent this year, outpacing a 15 percent decline in the Bloomberg Europe Telecommunications Index, valuing it at about 32 billion euros. Still, in October France Telecom raised its outlook for operating cash flow this year, and has pledged to protect its dividend.

Almost half the mobile operator’s 45.5 billion euros in sales last year came from France. In October, France Telecom agreed to acquire Congolese mobile operator Congo-China Telecom, entering its third new country in about a year after earlier deals in Morocco and Iraq.

--With assistance from Jacqueline Simmons in Paris. Editors: Elizabeth Wollman, Simon Thiel

To contact the reporters on this story: Matthew Campbell in Paris at mcampbell39@bloomberg.net; Aaron Kirchfeld in Frankfurt at akirchfeld@bloomberg.net

To contact the editor responsible for this story: Jacqueline Simmons at jackiem@bloomberg.net

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